The golden standard

Like many a Gen-Xer, Dawn Marchand has DB envy. “Both my parents were fortunate enough to have defined benefit pension plans,” says the president and CEO of Lawyers Financial, the not-for-profit insurance and investment services organization. “My mother was a teacher, my dad was a federal public servant, and I see how well-off they are. They will never outlive their money because it just keeps coming in every month.”

Defined benefit (DB) pension plans are the gold standard of retirement income. Employees and employers both contribute a percentage of the employee’s income — often 5% each — and at retirement, employees receive a defined monthly income for as long as they live.

DB plans used to be common in the public sector and with big employers. They are much rarer now. According to actuary Frederic Vettese, writing in the Globe and Mail in 2018, “it is a near certainty that there will be fewer than half a million active DB members remaining in the private sector by 2026. This translates into 3% or less of the private sector work force.”

DB pension plans are rare “because they’re very high risk,” says Marchand. There’s a high fiduciary risk for employers who need to guarantee they can fund retirement benefits for their employees. Individual law firms, like the overwhelming majority of private-sector employers, tend to steer clear of them.

Five years ago, Marchand was approached by Randy Bauslaugh, a national pension partner with McCarthy Tétrault in Toronto. Lawyers are not taking care of their retirement planning, Bauslaugh told Marchand and her colleagues. As a not-for-profit company dedicated to the legal community’s financial well-being, Lawyers Financial had a responsibility to look into the issue.

It spent the next few years researching law firms to see “what kind of pension plan we might set up on our own,” explains Marchand. Then in 2018, the College of Applied Arts and Technology (CAAT) came to Lawyers Financial and said they were opening up their pension plan to all Canadian organizations. CAAT’s plan, called DBplus, is a jointly-sponsored multi-employer plan.

Lawyers Financial was interested because in such a plan, the fiduciary responsibility is on CAAT, not on individual law firms. “It’s a complete turn-key solution,” Marchand says. “There’s no responsibility, no IT, no administration, CAAT does everything. All the employer has to do is make a monthly contribution, just like they do for CPP.”

Contributions range between 5% and 9% of an employee’s income, both for the employee and employer. However, Marchand explains, Lawyers Financial negotiated a special arrangement with CAAT whereby law firms can start at 3%, each for the employee and employer, provided they agree to increase the contribution level by at least 0.5% a year until they reach 5%. She adds that law firm partners are also eligible to participate in DBplus if they have a professional corporation, or PC, which pays the employer’s share.

Lawyers Financial started offering DBplus to the legal community in the summer of 2020. There is definitely interest, Marchand says, but the pandemic is slowing things down. People don’t have as many opportunities to hear about it, and there are fewer opportunities to spread the word around the water cooler.

It’s easy to understand why an employee would like to be part of a defined benefit pension plan. But what’s in it for law firms, who have to find room in their budgets to pay for contributions for every employee every month?

Quinn Ross, a managing partner of the Ross Firm, which has 37 employees, including 11 lawyers, joined DBplus in August 2020, right in the middle of the pandemic. In an episode of the Ontario Bar Association’s Work that Works podcast, he chuckled as he explained why his firm decided to spend a great deal of money while revenues were down just “to make everyone really happy.”

But the plan paid off, and then some. “Every time we do something positive like this,” he said on the podcast, “the dividends pay. It doesn’t matter how much you have to spend because the upside is going to always defeat it. It will always beat it.”

Before long, Ross noted how much easier it was to attract new talent, “because not a lot of small and mid-size firms have pensions.” Now whenever the Ross Firm tries to recruit new employees, they specifically mention their DB plan.

Research shows over 50% of Canadians say the stress of retirement planning is having a medium-to-high negative impact on their work.

“I’m in the business of insurance, and we see it through higher disability costs. We’ve all heard about the mental stress on the law community. That is the number-one disability that we see among lawyers. I’m not saying it’s all about financial planning. It certainly isn’t. But of a lot of it is,” Marchand explains, listing all the other costs to firms, including reduced productivity and lower employee engagement.

“We have a belief that if we take care of our people, the enterprise is assured to everyone’s benefit,” Quinn Ross says. “A DB pension provides an opportunity to alleviate the pressure of retirement and helps align the time when a person wants to stop working… and when they can stop working.” The Ross Firm also offers a four-day work week. The combination led to “an increase in productivity and revenues contrasting a decrease in employee attrition and health-related absences,” Ross says. “All in all, a win.”

To learn more about DBplus, you can watch this on-demand webinar.